U.S. Electronic Equipment Market – Continued Growth but at a Slower Rate

Based upon last week’s U.S. Dept. of Commerce’s “Factory Orders” report, domestic electronic equipment shipments were up 4.7% and orders rose 2.3% on a 3-month (3/12) growth basis. These figures were a slight improvement from the preliminary “Durable Goods” report however end market demand has been relatively flat throughout 2008 ( Chart 1 ). Most recently Search & search & navigation (primarily military) and computer equipment orders dipped while medical equipment, instruments and control equipment bookings continued to improve ( Chart 2 ).

	Chart 1

	Chart 2

( Chart 3 ) shows the change in the U.S. electronic equipment product mix since 2000. Medical electronics, instruments and control equipment are now the largest sector.

	Chart 3

Although finished goods inventories are increasing ( Chart 4 ), the ratio of inventories to orders has held relatively constant ( Chart 5 ), suggesting that bloated stock levels are not a major worry.

	Chart 4

	Chart 5

( Chart 6, Chart 7, Chart 8, and Chart 9 ) show the historical growth of electronic equipment orders and shipments by major sector (military, medical, instruments & control, communications and computer). Although a strike at Boeing is a major worry, U.S. aircraft & parts shipments ( Chart 10 ) have been growing strongly and U.S. vehicle shipments even showed a very modest upturn in July ( Chart 11 ) – despite GM slipping to no. 2 in automotive shipments ( Chart 12 ).

	Chart 6

	Chart 7

	Chart 8

	Chart 9

	Chart 10

	Chart 11

	Chart 12

In the component sector, U.S. passive component orders and shipments have been declining since early 2007 ( Chart 13 ). Their order growth has slightly lagged electronic equipment orders ( Chart 14 ).

	Chart 13

	Chart 14

Global chip sales rise 7.6% Y/Y to $22.178 billion in July ( Charts 15 to 21)

SIA says sales of consumer electronics, PCs and cell phones are driving chip demand.

Worldwide sales of semiconductors grew 7.6% to $22.2 billion in July from July 2007. Sales grew 2.8% from June. Year-to-date sales through July were $148.3 billion, up 5% from the same period of 2007 when sales were $141.3 billion.

"Growing sales of consumer electronics, personal computers and cell phones - which account for about 80 percent of chip demand - contributed to a healthy 7.6% year-on-year increase in worldwide microchip sales," said SIA President George Scalise. "LCD TV units are projected to increase 32% this year, and digital set top boxes and digital still cameras will both be up around 20%. Taking into account PC unit growth of about 13% and cell phone growth of over 10 percent, we are enjoying the benefits of the strong 3.3% second quarter GDP growth in the U.S ,and continued strength in world markets" Scalise continued.

Gartner Lowers 2008 and 2009 Semiconductor Forecasts

Gartner lowered its 2008 and 2009 semiconductor forecasts based upon macroeconomic trends, the collapse of the NAND flash memory market and slowing revenue growth from Taiwan Semiconductor Manufacturing.

It now projects total 2008 semiconductor revenue to be $285 billion, up 4.2% over 2007. Gartner lowered its 2009 revenue projection to $308 billion, up 7.8% from 2008.

While global macroeconomic conditions have worsened through the first half of 2008, IT markets have been stronger than Gartner initially thought, according to Bryan Lewis, vice president and chief analyst for ASICs, SoCs, and FPGAs. Gartner recently raised its PC and cell phone unit growth rates to 12.5% and 10% respectively, for the year, Lewis said.

"The whole semiconductor market has held up amazing well, but it's starting to show signs that it's going to crack," Lewis said.

Wrapping it up

( Chart 22 ) summarizes the annualized (12/12) and 3-month (3/12) growth for the domestic electronics “food chain.” The 3/12 leads the 12/12.

	Chart 22

Our approach to a “soft landing” continues.